Co-Operative Bank and RBC
1. Co-op Bank started using activity based costing to allocate operating expenses to products and customers. The overall process is important to the ultimate success of the bank, so it needs to be logical and transparent. The bank’s project team came up with 3 questions for the activity-based costing: “How should it define resource pools? What activities should it define? Should it analyze costs by product or by customer?” These questions seem very logical in helping implement the activity based costing. By writing the parts of account costing along the wall, everyone was involved and engaged while being able to see the work flow better. Many sources of information were used, which creates high validity within the bank. The bank brought analysts in to look over the activity based costing. Their results showed that all three Visa accounts were highly profitable products. The team chose three periods that would represent the bank’s cost structure. March, April, and May were the selected months for the sampling quarter, which is not a long period of time to gather accurate information. The period size is too small and it leaves out other important activity costs and holiday spending. Another weakness would be allocating the sustaining costs; the bank didn’t figure out how to allocate the costs between products. It would have been better to allocate the costs directly to the product in the long run, even though it would be expensive and very time consuming. Co-op Bank should keep the Independent Financial Advice/Insurance because the infrastructure costs aren’t going anywhere. The Independent Financial Advice/Insurance had very high marketing and sales activity costs, so the bank could reduce marketing as a direct step. The Pathfinder is one of the five entry products; customers may be disappointed if the bank got rid of it. The bank could see if there is a similar product that could be substituted instead. The Pathfinder costs showed very high customer inquiries,